The Blog of International Judicial Assistance | By Ted Folkman of Murphy & King

Lago Agrio comes to Ontario: Chevron and the $19B judgment

Posted on November 12, 2013

Today we have a guest post from Alejandro Manevich of Heenan Blaikie, who was in court for the first day of argument in the Yaiguaje appeal in Ontario. Alejandro, one of the editors of the new Standardless Review blog (where this is cross-posted), gives a great blow-by-blow of the argument. Long-time readers will know that I share Alejandro’s “long-standing skepticism towards the idea of requiring exigible property to ground enforcement jurisdiction,” though of course we wouldn’t phrase it this way in the US. I also would like to note the awesomeness of describing the competing lawyers as Dionysian and Apollonian. Could we call the film version “Lago Agrio: the Birth of Tragedy?”

When the Lago Agrio-Chevron case came before the Ontario courts, it gathered headlines from day one, with competing, lurid allegations of widespread environmental contamination and a fraudulent decision rendered by a corrupt judiciary, to say nothing of the eye-popping damages figure of some US$19 billion. However, at the standing-room only hearing a week or so ago before the Ontario Court of Appeal, the melodramatic factual narrative took a back seat to a significant legal question without precedent in Canada: can the court enforce a foreign judgment where the judgment debtor has no connection to the forum, such that the judgment will have no practical effect?

Given the notoriety of the case, the facts need little introduction. In briefest outline, the plaintiffs, residents of the Lago Agrio region of Ecuador (“LAPs”), sued Texaco in the U.S., alleging health and environmental damage from years of oil drilling. In February 2011, the LAPs obtained a judgment against Chevron Corporation (“Chevron”) in Ecuador, after the U.S. courts declined jurisdiction in favour of Ecuador, and Chevron bought Texaco. Even before the Ecuadorean decision, however, Chevron had begun extensive legal efforts in the U.S. and elsewhere to block enforcement of the judgment.

In the spring of 2012, the LAPs began an action to have the Ecuadorean judgment recognized and enforced in Ontario—though Chevron has neither any presence nor any assets here. The LAPs proposed instead to execute on the assets of Chevron Canada, a seventh-level subsidiary of Chevron. Chevron and Chevron Canada then moved to have the enforcement proceedings dismissed on jurisdictional grounds, without consideration of the merits.

In his decision this past May, Ontario Superior Court Justice David Brown, citing the exceptionally litigious history of the dispute, scarce judicial resources, and there being “nothing in Ontario to fight over,” arrived at an innovative solution. He held the court had jurisdiction to recognize the Ecuadorean judgment, but stayed the proceeding of his own motion, though without prejudice to the LAPs’ right to seek to lift the stay on providing evidence that Chevron has, or will likely have, assets in Ontario. Perhaps unsurprisingly, his Solomonic judgment satisfied neither side.

The legal backdrop to the issues in the Chevron case is the many recent sea changes in Canadian conflict of laws. Some ten years ago, the Supreme Court of Canada’s decision in Beals v. Saldanha significantly liberalized the Canadian common law on recognition and enforcement of foreign judgments. Beals established that a Canadian court will presumptively recognize a foreign monetary judgment where the foreign court’s assumption of jurisdiction over the dispute was consistent with Canadian norms. Such jurisdiction can exist by agreement, by attornment, or through showing the existence of a “real and substantial connection” between the forum and the parties or the dispute. The burden then shifts to the judgment debtor to establish one of the narrow defences to recognition: fraud, natural justice, or public policy.

Beals was silent, however, on whether the proceeding to enforce the judgment in Canada need have any connection to Canada. Indeed, it appears that no court in Canada has ever considered the issue, leaving aside some occasional obiter dicta. As Brown J. noted in his decision, this may not be so surprising. One would expect the issue to be self-policing, as judgment creditors do not ordinarily seek to enforce a judgment where the debtor has no assets, nor any likelihood of having any.

But the Chevron case, of course, is anything but ordinary, as the packed benches on October 31 could attest. At 10:30am sharp, the panel (Justices James MacPherson, Eileen Gillese, and William Hourigan) filed into Osgoode Hall’s Courtroom One, and the hearing began.

The oral argument from Alan Lenczner, counsel for the LAPs, presented an animated pairing of content and style, enlivening abstract principles of jurisdiction with his famously assertive delivery. Closely following his factum, he argued that the jurisdictional analysis in enforcing a foreign judgment should look only to whether the foreign court properly assumed jurisdiction over the dispute. The role of a Canadian court when enforcing a foreign judgment is fundamentally different from its role at first instance, since the merits have already been decided. He emphasized, as did Brown J., that nothing in the Supreme Court’s most recent reformulation of the “real and substantial connection” test, in Club Resorts Ltd. v. Van Breda, justifies the enforcing court analyzing its own jurisdiction. In any event, even if it were necessary for the Ontario courts to establish jurisdiction to enforce the judgment, the Ontario rules on service ex juris create a presumption of such jurisdiction.

Given his position on jurisdiction, Lenczner treated the granting of the stay and the absence of any Chevron assets in Ontario as quite separate from jurisdiction, and to some extent secondary to it at this stage of the proceeding. Indeed, he maintained that his jurisdictional argument should have been the beginning and the end of the discussion, and that Brown J. impermissibly used the stay as a tool of forum non conveniens, redirecting the dispute to the U.S. As Lenczner colourfully put it (and inspiring some good-natured laughter from the bench), “Justice Brown had no business telling me where to go!”

To this observer, the LAPs’ argument seemed to skip lightly over the key question of the nature of the enforcing court’s role and the resulting approach to jurisdiction, stating the position forcefully but avoiding much exploration of the underlying reasoning. While the Ontario rules of service may provide a presumptive jurisdictional basis for enforcing a foreign judgment, they do not answer if and when that presumption should be rebutted; the position of the LAPs seemed to be that it never would be. Chevron’s argument for the application of constitutional limits on extraterritoriality to the provinces’ enforcement jurisdiction has significant, though not uniform, support in U.S. law, which Chevron cited in some detail in its own factum. However, neither the LAPs’ factum nor the oral argument really explained why that line of jurisprudence should not be followed in Canada.

Be that as it may, the panel posed virtually no questions on the LAPs’ jurisdictional argument. Lenczner encountered more turbulence on the issue of piercing the corporate veil separating Chevron from its “downstream” subsidiaries; the judges seemed resistant to his vigorous call for a transformative change in the law of legal personality, granting courts broad discretion to disregard the corporate legal form where it would prevent recovery by plaintiffs in tort. His analogy to a case on the exigibility of property held in a charitable trust drew a perhaps predictable challenge from Justice Gillese, while Justice MacPherson questioned the need for the court even to reach the issue, noting that under the LAPs’ theory the exigibility of assets at the enforcement stage is immaterial to jurisdiction.

Counsel for Chevron, Clarke Hunter, had a more low-key, methodical approach, emphasizing logic and clarity—a more Apollonian style, one might say, compared to Lenczner’s Dionysian one. His oral argument was carefully organized around Chevron’s central legal proposition: a Canadian court enforcing a foreign judgment must itself have jurisdiction over the enforcement proceedings.

Hunter began from the foundation of Van Breda and previous cases on the jurisdiction of Canadian superior courts, which had made clear that the requirement that the Canadian forum have a “real and substantial” connection with the defendant or the dispute was a consequence of constitutional limits on provincial extraterritoriality. Though no case had previously addressed whether this requirement should equally apply to a Canadian court hearing a dispute over the enforcement of a foreign judgment, Hunter argued that it must, as a matter of first principles. While the Canadian court will not revisit the merits of the foreign judgment, it does nonetheless engage in adjudication: namely, whether the presumptive criteria for recognition and enforcement have been met, and whether any of the defences apply. Hunter also appealed to comity in support of this argument, suggesting that an Ontario court deciding on the enforcement of a foreign judgment where it has no real interest in the dispute would be disregarding comity, as it would be effectively an advisory opinion on enforceability obtained for tactical reasons.

Hunter’s presentation came across to me as lucid and compelling, despite my long-standing skepticism towards the idea of requiring exigible property to ground enforcement jurisdiction. Justice Gillese seemed to be having great difficulty with his thesis, however, posing several questions early in his presentation, and suggesting that such a requirement at the enforcement stage would be premature. She highlighted paragraph 81 of Brown J.’s reasons, where he had rejected Chevron’s jurisdictional arguments because of practical concerns, as judgment creditors may want to recognize a judgment ahead of time in the event exigible assets move into the jurisdiction at a later date. Hunter argued that scenario was inapplicable in this case, given Brown J.’s finding that there was no prospect of Chevron having assets in Ontario. Furthermore, as Chevron put it in its factum, Brown J.’s reasons did not appreciate that the constitutional aspect of the “real and substantial” connection test must apply here as they do in any other proceeding. While under the rules of service an Ontario court has presumptive jurisdiction over a non-resident judgment debtor where the foreign judgment is sought to be enforced in Ontario, there must be some circumstances in which that presumption can be rebutted, even if only in the rarest of cases. This case, argued Hunter, was one.

Hunter also devoted a portion of his argument to defending Brown J.’s findings on piercing the corporate veil between Chevron and its subsidiaries, as on Chevron’s theory piercing the veil could create a jurisdictional basis for the enforcement action, by attributing Chevron Canada’s assets to Chevron. In response to Justice MacPherson’s observation that Hunter wanted to lift those findings from their context in Brown J.’s decision to grant a stay, and use them instead in support of Chevron’s jurisdictional argument, Hunter noted that the parties had argued the issue of corporate veil before the motions judge, and that the LAPs had invited him to make findings on it.

Unfortunately, I was unable to attend on the second day, where Ben Zarnett was scheduled to make submissions for an hour on behalf of Chevron Canada, and then Lenczner was to have 15 or 20 minutes for his reply. Hunter had indicated in his introduction that Zarnett’s oral argument would focus on the issue of piercing the corporate veil. Chevron Canada’s factum sets out that argument in much the same terms as Chevron, though to my thinking the argument on the page reads a little bit like an objection on the merits (i.e. Chevron Canada is not a party to the Ecuadorean judgment, so there is no cause of action against it to enforce), but shoehorned into a jurisdictional motion, to avoid attornment to Ontario as a result of engaging the merits of the dispute. Lenczner in fact alluded to this issue briefly at the end of his oral submissions, explaining that the LAPs had made Chevron Canada party to the recognition and enforcement proceedings in order to bind it to the result, and to ensure it had notice that the LAPs intended to execute the judgment on its assets.

What comes next? I would hesitate to infer anything from the judges’ questions, or from their silence, especially in a case this challenging. The judges gave no indication of when they will release their decision, though it seems a reasonably safe assumption that this will not be one of the 85% to 90% of cases disposed of quickly through a brief endorsement. Perhaps the nearest equivalents are the Court of Appeal’s decisions in Van Breda and in Beals—the former was under reserve for just under four months, and the latter for well over a year. About the only thing most observers would likely agree on is that regardless of the result, one or both parties will pursue an appeal. Stay tuned, and watch this space.

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